If you have been looking into estate planning in California, you may have come across a revocable trust. Many financial advisors and attorneys suggest that this is one of the most powerful tools you need whether or not you have assets and beneficiaries. Read on to know more about revocable trusts and if they are right for you.
What is a revocable trust?
A revocable trust (also known as a living trust) is a separate legal entity that you sign, naming a third party entity to hold and administer your assets. The third-party entity is known as a trustee, and you—the creator of the trust— is the grantor. And, of course, the people that will receive your assets when you pass are your beneficiaries.
It is termed “revocable” because you can change the terms of the trust whenever and however you want or revoke it when you are alive. But, once dead, it becomes irrevocable or unchangeable. The trustee you named will carry out your wishes exactly as you dictated on the trust.
Furthermore, the assets in the revocable trusts are owned by the grantor. You will still file tax returns, report capital gains, and answer to creditors. This makes it different from the irrevocable trust because the trustee becomes the new owner, and the grantor is set free from legal and financial ties to their property.
Is a revocable trust right for you?
As long as you are alive in California, you could use a revocable trust. It doesn’t matter whether you have multiple estates or businesses; you can use it for features such as Durable Power of Attorney or Advanced Healthcare Directive.
With Durable Power of Attorney (POA), you can name someone that will handle your legal or financial issues on your behalf when you become incapacitated. Advanced Healthcare Directive enables you to direct medical practitioners on how you want to be treated when you can’t make such decisions for yourself. And if you have assets, a revocable trust makes it easier for your beneficiaries to get your assets.
You should note, however, that revocable trusts do not save taxes. You will still pay income and estate taxes. Fortunately, California has no inheritance tax.